xiaohua

In a span of a few weeks not long ago, Americans heard a few cases of beheadings in the US. Of course, most of us haven’t been able to come to terms with beheadings in the Middle East but we now have to face it in the US.

I’ve been living in the US for 40 years and I don’t remember ever reading this kind of cruelty and savagery in this country.

Why did these events even happen in a soceity like the one in the US? What have happened to these people? Did they learn their vicious acts from the actions of the IS? Are they trying to instill fear and panic to the American people? Or did they simply express their basic human nature when law failed to control their basic instincts?

Three weeks ago in Taiwan (10-29-2014,) a 79-year old 彰化 man cut off his 47-year old mistress’s ears, nose and lips while she was still alive because he suspected that she had flirted with someone in the tour group on a trip to Japan. He even flushed away the cut-off parts in the toilet and then called the police to report the crime.

Yes, you read it right: he tied her up while she was sleeping and then took an hour to cut up her faces while she was fully aware of what went on with her body.

Wow! I’ve read this kind of sadistic acts in novels and saw it in movies but never image it could happen in a civilized society like Taiwan.

Is the world being turned upside-down by the real nature of human being?

When I was going to school as a small kid in Taiwan, one of the books we read was ‘三字經: Three word chant.’

It begins with these two simple phrases: ‘人之初 性本善.’

What it means is this: Human being at birth is good-hearted by nature.

I actually don’t agree with what it preaches because I’ve long suspected that ‘人之初 性本惡’ or ‘Human being at birth is evil-minded by nature.’ The most obvious places to look for this type of human behavior is selfishness exhibited in children. Only through education and soceital influence, human learned to live under rules and regulations. Gradually human being learns to control his or her natural instinct and begins to let the good side shine.

However, extreme violence such as cutting other people’s heads instigated by religion can’t be explained by common sense. Al Qaeda stopped beheading after it bought condemnations from all over the world. The pratices have been bought back by the IS and the action broadcasted all over the web.

OPEC has decided to keep its oil production at 30 million barrels per day for the next 6 months.

Actually, Saudi decided the course of action and everyone else in OPEC had to go along with what the head of the family wants. The reason was very simple: Saudi is tired of being the swing producer and it is about time for someone else to take up the role.

Well, you might call it Saudi’s Weapon of Mass Destruction: Saudi’s WMD. We call it a WMD because the destruction reaches far and wide.

Consider the following:

1. US shale oil producers, especially the marginal ones and companies with huge debt, will be desimated. They will see their cash flow cut immediately and they will feel the financial pain right away. Well, they are Saudi WMD’s primary targets and they have no place to hide. Projects will be delayed. Hiring on hold. CAPEX will be cut. Dividends will be eliminated. Pretty soon, some people who have flocked to North Dakota, Pennsylvania and Texas in search of petrodollars will be called into their supervisors’ office because they will be getting pink slips instead of paychecks. People who have paid ridiculous prices for condos or townhouses in these areas will be underwater because they will owe more than their houses are worth. All those petro taxes to the cities, states and the federal government will slow down to a trickle and US GDP growth will drop accodingly.

2. Some US banks may have to set aside more reserves just to cover the bad debts many shales oil companies will not be able to service. The US shale oil boom was built on cheap loans just like the failed dot.com companies around 2000 which were financed by angle funds and easy money from the VCs. The US shale oil boom is likely about to burst. The 敗家子-like behavior of the American shale oil companies is about to bankrupt the American shale oil industry under the weight of Saudi’s WMD.

3. Ever since the rumor of Saudi’s ‘no production cut’ position was reported in the news, stocks of oil companies, MLPs, oil drillers and oil service companies have shedded 30, 40 or even 50% of their market values. Many investors have seen the values of their portfolios, IRAs and 401(k)s dropped. Dividends from energy-related companies and midstream MLPs will be cut and a cyclical bear market for these company stocks will begin. We at this time do not know how long this bearish cycle will be because we have yet to see the full range of Saudi WMD’s total destruction force.

4. Russia’s economy will be hugely affected negatively. Russian GDP growth will probably be negative soon now that the international sanction is in full swing made worse by the depressed crude oil price for any extended period of time. Ruble is down so much from the level just several months ago and millions of Russians are already poorer because of Ruble’s diminishing purchasing power. However, Russia’s huge foreign currency reserve will cuision the blow and the international events will accelerate its pivot to China.

5. Iran is unfortunately in the same boat like Russia does. America may have played a role in Saudi’s WMD which actually killed two birds with one quick and dirty WMD. It is quite effective, isn’t it? The fact that Iran is the archenemy of Saudi is beside the point. Saudi will take every chance to punish Iran and giving the chance Saudi will not hesitate at all.

6. There is only one country in OPEC which has negative current account balance: Ecuado. The lower oil price achieved by Saudi WMD will make Ecuado’s situation even worse. Ecaudo is running a budget deficit but the small country has a puny foreigh curency reserve: ~$2.6 billion. Capital will flee. Ecaudo will raise its short term interest rate to stem its currency from sliding to fast. The country will sink into recession and we may see a default coming soon.

7. Venezuela isn’t safe from Saudi’s WMD either because its budget deficit will increase and its foreign currency reserve isn’t big enough to defend its currency: Bolivar. Economy will tank and people of Venezuela will sadly pay with a lower living standard and a cheaper Bolivar.

8. The greatest transfer of wealth from oil consumers in the developed nations to oil exporters will slow down a bit. However, this is only temperary. In less than two years, just a guess, oil price will recover and wealth transfer will resume.

9. Saudi kings, princes and princesses will make less money. They are very rich already so the damage isn’t that bad.

10. Saudi’s WMD also has many winners. Many countries will pay less for their oil imports: e.g., US, China, Korea and Japan. China in particular will be happy to add to its strategic oil reserve with cheaper oil. Consumers in general will keep more money in their pockets which will stimulate the economy. Sooner than later, economy will pick up and oil demand will rise. Oil production in the world will drop because marginal fields will shut down. Saudi will then remove the WMD and good old days will come back. Saudi will be a happy guy again.

OPEC has decided to keep its production at 30 million barrels a day which was expected by the market. WTI is down to $70/bbl right after the news was announced. I guess that shale oil is selling below $60/bbl now which is below the costs of many shale oil projects.

Many articles talked about decline of US shale oil production which it will in time. But there is another angle to this headline: heavy oil and oil produced from oil sand projects face even higher pressure because prices for heavy oil are even lower but they cost more to produce.

Oil price will drift lower into the $60 range and more pain will be felt in the oil industry. Oil company stocks will face downward pressure until things stablize in the supply and demand picture in the world.

Wait to pick up some bargains when there is blood on the street.

There are fights breaking out on the main street but only some blood is spilled. More actions will come.

If I have to guess, just a guess, the bottom is closer to current level than the top is.

Imaging, please, for just one nano-second of a press conference announcement from DOE in Washington, DC:

EOG, WLL, CXO, SRE, CLR, XOM, CVX, PXD and COP have agreed that they will cut their U.S. production by 2 million barrels per day starting January 1, 2015.

What will that do to the oil price and stocks of foreign oil companies?

Nah. It won’t happen.

But, aren’t some of them the ‘始作俑者’ of oil price decline by 30+% since June?

The best way to achieve a stable oil price is every oil producing country cut its oil production by about 2.5% because there is 2 million barrels of excessive oil production in the world.

Nah, that won’t happen either.

Every country is in it for itself. The one which carry the biggest stick dictates the outcome.

And we are talking about Saudi. Period.

I talked about America acted like a ‘敗家子’ when it comes to producing shale oil without any consideration of long term national security in an earlier post on my blog.

Source: Businesd Insider.

Now, it is likely that Saudi will let the crude oil market to stablize itself.

With the total production costs of American shale oil around $60-$80/bbl vs Saudi oil’s $20/bbl, there is no argument here who is the onw with a big stick.

Imaging for a minute now, what if Saudi let oil price drops to $60/bbl and keep it for 2 years.

Of course, there is a consparicy that White House told Saudi to keep oil production up so that Russia will be weakened as a new run of cold war begins to take shape.

Well, your guess is as good as mine on this.

Do you know who is the biggest beneficiary on this?

Yes, you guessed. It is China.

China gets to import cheaper oil and it will save ‘BIG MONEY’ because it is the largest oil importer in the world. China will buy even more oil than its economy requires because China is building its strategic oil reserve from the current 10 day supply, or about 91 million barrels, to about 90 days of net import. China still has a long way to go so that it will take the opportunity to ‘fill it up’ with cheap oil.

Americans will benefit because we will keep more money in our pockets instead of sending it into oil producing countries. But, the only bright spot of the US economy, shale oil productions, drilling and oil transportation by rail will suffer. CAPEX spending will be cut. Marginal project will be delayed or eliminated. Finally, pink slips will fly. ‘敗家子’ will be broke again. Oil import to the US will rise.

A friend took us to this nice little restaurant hidden away from the bustling city life into the woods in Sanyi, Taiwan.

The restaurant

Menu cover.

Kitchen.

The property probably took up five acres at the foot of a small hill and the restaurant has several wooden buildings offering light meals, tea, coffee and desserts. It has a huge open space for dogs to run, a small hill for you to exercise your legs, a small pond for ducks to swim, an area for kids or their parents to play and places for lovers to cuddle together.

We stayed for about an hour including climbing the hill and wondering around enjoying the fresh air and country feeling. We had some coffee, tea and a piece of cake.

It was a nice time out and according to my friend there were many places like this one spreading out all over Taiwan.

If a country is friendly to the U.S. and if the country is strategically important to American’s security and national interests, U.S. will sign alliance treaty with that country, shower the country and its leaders with American tax money, arm its military with advanced weapons and fighter jets and offer protection in exchange for a military base or surveillance operation. NATO countries, Israel, Saudi Arabia, Kuwait, UAE, Qarar, Japan, and Baltic states are good examples in this class of countries.

If a country is not a threat to American’s national security but America has no national or commercial interests in this country or the region, the U.S. will not engage with it in any substantially fashion no matter how many people got killed in tribal dispute, genocite or ethnic cleansing. Rwanda, Bhutan, Sri Lanka, Congo, East Timor, Botswana, Sudan, Chad, Kenya and many other poor African nations. The best America will do is offering lip serviced at UN or when pressed by foreign reporters.

If a country can be used to advance the broader objectives of American’s ideological, political or economical ambition in the world, the U.S. will covertly or better yet openly establish a pro-U.S. government using money, military aids, trades and economic assistance to seal the critism from the opposition parties. Philippine, Vietnam, Taiwan, South Korea and Chili are examples.

If a country is a bad case to America and if America determines that this country is a threat to the world, America will twist other countries arms and put a sanction on its government and let its people suffer. If necessary, America will invade its territory, kill its soldiers and innocent people, support its opposition party and get rid of its leader. Once the bad actor is gone, a new guy was chosen and put in charge the puppet government. Iran, Iraq, Afghanistan, Pakistan, Soviet Union and now Russia belong to this group.

I called America the no. 1 hypocrite in the world.

Who gave America the right to set the rules for the world order?

How come there was no mention at the G20, G8, G8-1 or whatever it was, of hundreds if not thousands of innocent people killed by American’s bombs dropped by American drones in Africa or other places in the world?

No wonder American government or American foreigh policy isn’t loved by other people in the world.